Certainly the evidence that people don’t typically behave rationally is quite compelling. It’s easy to find examples of behavior which conflicts with economic theory. The problem is that it’s not clear that these examples help us much. I’m pretty much obsessed by when, why, how and where we choose to spend our money. Or save it.

Given how little money most Americans save — here’s a blog post from The Economist about that — it’s a tough decision to postpone immediate pleasures (let alone the daily grind of needs), for groceries, housing and medical care in the future, possibly decades away. What if we never get there?

But what if we do live to be 80, 90 or beyond — and find ourselves broke and scared?

Here’s a frightening post from one of my favorite writers, Guardian journo Heidi Moore, about how older women — because we earn less and live longer — end up in poverty:

17.8 million women lived in poverty in 2012, 44% of whom lived in extreme poverty. Extreme poverty means “income at or below 50% of the federal poverty level”, which amounts to less than $5,500 a year…

What is surprising is that the slide into deep poverty is happening so soon, and in such massive numbers, among the elderly. It’s not clear what could have changed between 2011 and 2012 to cause it.

My mother went into a nursing home three years ago, paying — for a small room — $5,000 a month. Yes, really. That certainly made clear to me the very real cost of getting old, ill and needing costly care every single day. She saved, lifelong and ferociously, so she has the funds for it.

Most of us will not.

Our parents and grand-parents, and a few fortunate folk in specific industries, could look forward to a company pension; Jose will receive one from The New York Times, thank heaven. A few lucky people also get a company match to their 401(k) retirement savings from their employers.

But most of us are now expected and required to save and save and save and save, praying our investments retain and grow in value. I’ve been saving 15 percent of my income every year for a while; it’s finally adding up to a sum that makes me feel like the sacrifice is worth it.

It’s also simplistic to shame people who “spend too much” when millions have lost their jobs, often repeatedly, and have run through whatever savings they might once have had. Millions are also now earning far less than they once expected or hoped to.

Wages are stagnant or falling while the cost of living rises each year — and we’re still human beings who actually want to leave our homes and have some fun!

Saving money is my single greatest challenge. (That, and earning a lot more — like trying to double my income this year in a dying industry. No pressure!)

Today’s New York Timespaints a grim picture of how tough it is to save money now, especially for younger people:

A new study from the Urban Institute finds that Ms. Brady and her peers up to roughly age 40 have accrued less wealth than their parents did at the same age, even as the average wealth of Americans has doubled over the last quarter-century.

Because wealth compounds over long periods of time — a dollar saved 10 years ago is worth much more than a dollar saved today — young adults probably face less secure futures for decades down the road, and even shakier retirements.

“In this country, the expectation is that every generation does better than the previous generation,” said Caroline Ratcliffe, an author of the study. “This is no longer the case. This generation might have less.” The authors said the situation facing young Americans might be unprecedented.

A broad range of economic factors has conspired to suppress wealth-building for younger American workers; the trend predates the Great Recession. Younger Americans are facing stagnant pay — the median income, when adjusted for inflation, has declined since its 1999 peak — as well as a housing collapse and soaring student loan debt.

I grew up in a family with good taste and the money to indulge it — cashmere and trips to Mexico or France, a nice house, decent used cars, good food. My maternal grandmother inherited an insane amount of money and ran through it as fast as she possibly could, blowing it on jewels and furs and gorgeously-decorated apartments and a limousine service with a thin driver named Raymond.

It’s weird to grow up around a lot of money and develop tastes for luxury — and then choose a field, journalism, that has rarely paid me enough to satisfy them.

Saving money is so boooooooooring!

And so utterly necessary.

American Buffalo (coin) (Photo credit: Wikipedia)

But I save 15-25 percent of my income every year, as does my husband. It means a lot of self-denial and self-discipline, certainly if your income is barely meeting your basic expenses, even pared to the bone.

I’d so much rather go to Paris and buy lots of pretty clothes and see Broadway shows and go away for romantic weekends. But to save the dough we need to retire — which we very much intend to do — demands it. Working freelance also means having no idea, most of the time, what my annual income will be. Not even next month’s.

So it means being aware at all times of what I’m earning, spending, saving and carrying in debt, (and at what rates of interest.) It’s only in the past three or four years — and I’m in my 50s — that saving diligently has finally felt worth it, as my retirement fund is now six figures.

It feels good! (Cue James Brown…)

James Brown (2001) during the NBA All Star Game jam session (Photo credit: Wikipedia)

It’s terrifying to plan so far ahead, to hope we’ll live that long, and healthily, to wonder if all this daily self-denial is even worth it. I get why people don’t.

Saving a ton is certainly easier if you also earn the maximum you possibly can. That might mean working two or three jobs for a while.

Many women, though, remain deeply uncomfortable asking for more money, whether in a salary negotiation or freelance gig. No one is going to hand it to us!

One of my favorite books — every woman who works must read it– is “Women Don’t Ask”, which examines the many reasons women continue to receive lower pay than men for the same work. Mostly because we’re too damn scared to ask for more! (Men do, almost every single time.)

The more I make, the more I can save. (And occasionally splurge.) That motivates me every single time to ask for more work and the highest possible rates for it.

A subway station in Buenos Aires...a place I very much want to visit someday! Image via Wikipedia

Great piece in The New York Times by a certified financial planner in Park City, Utah:

One of the most challenging personal finance issues we all face is the ever-expanding definition of “need.” Things we once considered clear luxuries have somehow becomes necessities, often without any consideration of how the change in status happened.

Cars that seemed just fine now seem old fashioned. Then there are children and their cellphones. Only a few years ago it would’ve seemed outlandish for 14-year-olds to need one at all, let alone the latest iPhone.

Achieving clarity about the difference between our needs and wants remains one of the biggest challenges in personal finance and a tremendous source of potential conflict within families. While simple in theory, the calculation is much more complex in practice.

One of the most discouraging parts of modern life seems to be this never-ending sense that we should want more.

I’ve lived in a one-bedroom apartment, with limited closet space, (which I share and in which I work), since 1989. There just isn’t a lot of room for a lot of stuff. I admit it, we do have several storage lockers…

But I’m not typically crazed about buying more stuff. I hate malls, don’t really find shopping very interesting and have been living, since losing my staff job in 2006, on less than a third of what I then earned — while all our costs have risen considerably, whether bridge tolls, gas or food.

My greatest indulgence is objects for our home, whether the folk art black horse I bought last month in Ontario or the transferware plates I collected in the 1990s before they became trendy and expensive. I look at all those plates and think – really? Then we had a party last week with 34 guests and I had plenty of tableware and serving pieces and was happy not to resort to Chinet or paper.

We only upgraded last year to a flat-screen television — which Jose bought while I was away, knowing I’d say (truthfully) we did not need a new TV and our huge black 1988-Sony Trinitron was just fine. Which it was.

So it’s an interesting battle for any of us with disposable income (and deeply grateful for it!) — what do we really need and what do we (only) want?

And when is it OK to give in to the latter?

I’m at a point in my life I want, more than anything, things or experiences that are damn expensive. Because we’re lucky enough to own (and maintain) the basics, whether a good laptop or decent cookware.

But I seriously crave annual (or more) overseas travel, although I can’t say I need it.

In a weird way, I sort of like not having a ton of money — precisely because obsessing about buying more and more stuff is really not workable. We drive a paid-off vehicle and live well in a small-but-lovely home we own, (albeit with a mortgage.) I’m still able to save 15 to 20 percent of my diminished income every year. (We also have no kids, which saves us $10,000 per child annually.)

I’m also at a point in my life, mid-50s, where the things I most want are not things one can actually buy.

— I’d really like to find a way to double, if not triple my income in order to truly beef up our retirement savings.

— I’d like my half-brother, after years of refusing to acknowledge my existence, to get a grip and deal.

— I’d like my mother to realize the three women currently showering her with attention, (she is addled, starved for attention, isolated, old and rich), may not be quite as benignly devoted as she is persuaded they are…

Here’s a cheery reminder from a Globe and Mail story — Canada’s national daily — that women are screwed financially in old age if they devote their midlife time and resources, as many now do, to caregiving.

I’ve spent much of my workdays, (which is my only source of income as a freelancer), on the phone and email so far this week dealing with social workers, nurses and lawyers to discuss what happens next to my mother (divorced, few friends) who lives a six-hour flight away in Canada and who is now in the hospital.

It remains to be determined whether she will be able to return to living alone in her home.

As her only child, I can’t turn to anyone but my partner for help. We’re lucky she gets as much free government-supplied help and health care as she already does.

Another friend my age, a woman who is also a writer, devotes many hours every week cooking and caring for her in-laws. Her two sons, looking for work, are back at home.

We’re both very fortunate in having husbands and partners who earn a decent wage and, while our labor is necessary to the family income, it is not the primary or exclusive one.

(This lowered family income does not come without conflict. I could certainly earn more and spend less if I ignored my mother’s complicated needs.)

Every hour and dollar spent, lovingly or not, devoted to the care and needs of others is wage-earning (or re-charging) time lost to oneself or one’s other current and future financial needs.

The less money women earn (and we out-live men, statistically which means we need to earn, save and invest even more than men while typically working fewer years and earning less), the poorer our old age will be.

Caregiving often means financial disaster for the person giving it.

To whom does your duty lie?

What if your parent(s) were neglectful or abusive? Made lousy choices financially and with their health, and now, as a result of those choices, need (your) help to survive?

Too many of us are struggling in a terrible economy, with little or no leeway for our own needs, now and in the future.

We recently spent three eight-hour days doing the job we had put off for a decade — clearing out our rented storage locker. (Confession: some of it went into a smaller space, the rest of it into the garage. And, yes, there are four small lockers with other stuff — out of season sports gear and clothing, suitcases, etc.)

In so doing, we immediately saved $150 a month in rental fees, plus the $350 we netted for selling 24 boxes of books.

Here’s a thoughtful New York Times piece about what museums, so politely call, de-accessioning:

A two-bedroom apartment. Two cars. Enough wedding china to serve two dozen people.

Yet Tammy Strobel wasn’t happy. Working as a project manager with an investment management firm in Davis, Calif., and making about $40,000 a year, she was, as she put it, caught in the “work-spend treadmill.”

So one day she stepped off.

Inspired by books and blog entries about living simply, Ms. Strobel and her husband, Logan Smith, both 31, began donating some of their belongings to charity. As the months passed, out went stacks of sweaters, shoes, books, pots and pans, even the television after a trial separation during which it was relegated to a closet. Eventually, they got rid of their cars, too. Emboldened by a Web site that challenges consumers to live with just 100 personal items, Ms. Strobel winnowed down her wardrobe and toiletries to precisely that number.

Now the couple, debt-free, lives on $24,000 a year.

It’s not a new idea, living on less, although it’s rapidly gaining currency. In a 1992 book, “Your Money Or Your Life”, Joe Dominguez and Vicky Robin pointed out you’re spending time or you’re spending money. Save one, and you save the other.

I’ve chosen, deliberately, to stay in a one bedroom apartment for 20 years. In flush years, I could have traded up to something bigger, maybe even a house. I didn’t want to. I didn’t want: to buy a lot of stuff to fill it with; maintain and clean all that stuff; clean gutters and shovel sidewalks or mow a lawn; the daily anxiety that, if I lost that job or income or client(s), I’d lose it all. Even in the leanest times, and they have gotten lean, I could manage to stay in my home, building equity.

I loathe debt.

We drive a nine-year-old car, paid for. We are trying hard to find new and better ways to earn and save in order to pay down the mortgage as soon as possible. In line with popular sentiment, we’re now much more focused on experiences over stuff. We threw a party and invited friends to celebrate the completion of my book. The money we spent for food and drink that night might have bought two of three pairs of shoes or 10 new or 20 used books or CDs or…more stuff.

These days, I want more life and less stuff in my life.

And yet, and yet…how does one turn a blind eye to all those delicious temptations?

Being cheap is the new black, writes Daniel Akst in the Wilson Quarterly (you have to pay for on-line access), quoted in The New York Times:

To be thrifty, after all, is to save, and to save is not only to keep but to rescue. Thrift is thus a way to redeem yourself not just from the unsexy bondage of indebtedness but also from subjugation to people and efforts that are meaningless to you, or worse. Debt means staying in a pointless job, failing to support needy people or worthwhile causes, accepting the strings that come with dependence, and gritting your teeth when your boss asks you to do something unethical (instead of saying “drop dead”). Ultimately, thrift delivers not just freedom but salvation — which makes it a bargain even Jack Benny could love.

Margaret Wente, writing in The Globe and Mail, wonders how anyone — save the fortunate few with defined-benefit pensions — will actually survive retirement without a pile ‘o cash:

Because of imprudence, misfortune, a vast shift in cultural habits, or the sheer financial drain of supporting their kids until age 28, they are facing their old age with no savings, no pension and few assets. I have no idea what they’re going to do. All I know is that there are plenty of them. For the first time since we introduced old age pensions, millions of people who’ve led comfortable, middle-class lives are facing a big drop in their standard of living when they stop working. No more salmon teriyaki for them.

“A large chunk of the baby-boom generation is on the verge of retirement with only the state to depend on for a retirement period that will be, on average, the longest in Canadian history,” writes consultant Robin Sears in the magazine Policy Options. “We were pension pioneers. But we’ve lost our way.”

Whose fault is it that we don’t save like Grandma did? Is it ours, for crashing our savings rate below zero, and not being disciplined enough to resist the siren call of easy debt that’s been relentlessly marketed to us for a generation? Whose fault is it that we’re living longer than anybody has before, and screwing up the actuarial tables? Whose fault is it that the vast majority of us fail to save at least 10 per cent of our earnings starting at the age of 30, the way we’re supposed to? What about the single mom who’s put her kid through university, or the highly creative guy who is stupidly hopeless with his money, or the manager who got laid off at 57 and has to dip into his savings, or the millions of conscientious people who pay shocking fees to the investment industry to mismanage their RRSPs? Should we blame them, too?

You can see the problem here. Saving up for your old age is an individual responsibility. But helping you do it is a social one.

It would be nice if we could be more like the Chinese, who save 40 per cent of their money. That’s because they know they might starve or die from lack of health care if they don’t. The danger is that we’ll wind up like the Japanese, who suffered a huge economic hit in the ’70s and ’80s. Millions of retired folks were forced back into employment to support themselves. Former doctors took jobs as parking-lot attendants.

As someone self-employed, it’s not an issue I take lightly.

It’s a big pile of ifs: If my partner and I stay together, married or not, I’ll be OK, if his pension is still there; if Social Security pays out to us both what our statements tells us it will; if we keep saving 15% -plus percent of our incomes every single year; if our carefully chosen and diversified investments don’t tank; if , when we finally tap our accumulated capital, interest rates aren’t where they are now — a smack-in-the-face 1-2 percent on safe, secure holdings like CDs.

Now there’s a fair recompense for all that thrift!

If we bust up, it’s Friskies and a cardboard box for me! If I still own my home, and the mortgage is paid off, and if I can afford the monthly co-op maintenance fee, my only possible salvation from penury will be a reverse mortgage. Because my writing income isn’t nearly where I want it to be, and I can’t see suddenly doubling or tripling it for the next decade consistently, (believe me, I’m trying), my projected SS income wouldn’t get me through a month right now. There’s a comfy thought.

The old three-legged stool: SS, pension and savings is missing a leg — the pension — for most of us now. The second leg, savings, is a perpetual challenge when gas is $3/gallon and wages are stagnant or, in my industry falling to 1970s rates. Hey, change careers! Assume $10,000 to $75,000+ in student loan debt and cross your fingers that shiny new job market is all perky and welcoming when you graduate, competing with people willing and able to work at half the wages because they’ve still got five decades to save.

If they do save.

I recently interviewed, for my book, a single 51-year-old with a Master’s degree and $40,000 of student debt. Canned from her non-profit job a few years ago, she makes — wait for it — $7.25 an hour working retail. She couldn’t possibly save a dime and lives thanks to hand-outs from her 82-year-old mother. Her life is not quite what she planned.

One friend, 16 years my junior, is scrambling harder and harder and harder, like a hamster on a speeding wheel, to earn what she needs. Like us, she and her partner don’t even have kids. They are stylish and fun, but live very frugally.

Do you know what your partner, husband or wife earns, spends, saves and invests? Do you know their FICO score? (And vice versa)?

Really?

Today’s New York Times has a terrific column on the four issues every couple needs to grapple with before marriage or serious commitment: ancestry, credit, control and affluence. We all bring patterns of spending influenced by our families of origin. Credit is how many of us get through life, whether a car loan, college loan or mortgage, but you can’t get far with a lousy FICO score. Control is the toughest. I don’t want to tell my partner he can’t play a round of golf, but when a day’s outing at a decent public course where we live costs $100, I wince every time he reaches for the clubs. Not fair, not fun. Somehow, we have to figure it out so I, too, can have my amusements without asking permission for every one of them.

Affluence is another challenge to unpack, certainly in a recession where the lifestyle you thought you married can suddenly fly out the window with job loss, prolonged job searches and perhaps a new job at half the old salary. Living “for richer, for poorer” tests any marriage, but especially one where no one’s hopes or expectations have ever been explicitly acknowledged or discussed.
Talking frankly about money and what you want to do with it — whether blowing it on a pair (or five) of Jimmy Choos or a new set of clubs or saving up a six-month emergency fund — is rarely easy. People set up housekeeping every day with no idea what their partner really values most or knowing how to even initiate the conversation. So many of us avoid it. Bad idea. I was so deliberately, lazily ignorant while married to an M.D. I did not know who held our mortgage nor the amount nor the due date. He walked out, for good, the day it was due. Ooops.

This week has been a real financial come-to-Jesus moment at our house for two reasons; my sweetie’s newspaper employer suddenly announced the need to cut 100 jobs before Christmas, including buyouts. No pressure. And we’re hoping to refinance our mortgage, reducing the interest rate from a usurious 8 percent to 5 or thereabouts. That means — ugh — writing out all our assets and liabilities so the bank can shine a light into every imaginable orifice. Before the bank sees it, we’ve seen it. Shriek.

I’m the broad behind Broadside, Caitlin Kelly, a career journalist. photo: Jose R. Lopez You’re one of 13,3430 followers, from Thailand to Toronto, Berlin to Melbourne. A National Magazine Award winner, I’m a former reporter and feature writer at The Globe and Mail, Montreal ... Continue reading →